New offer price boosts i-flex’s valuation

TNN|

Dec 09, 2006, 03.29 AM IST

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MUMBAI: It’s the classic cat-and-mouse game. A year-and-a-half after the acquisition of its initial stake in i-flex Solutions, Oracle, the world’s second largest software firm, will pay double the amount for a much smaller stake as per the latest open offer price announced by the company.

The revised offer of Rs 2,100 per share makes i-flex one of the most valuable IT firms today, more than industry heavyweights Infosys Technologies and Tata Consultancy Services (TCS). Infosys is currently trading at 26 times its FY08 earnings and TCS at 23, according to ET estimates. In comparison, Friday’s open offer values i-flex at 37 times its estimated FY08 earnings.

Speculation was rife that Oracle would have to make an offer way above the floor price. Before Friday — while the open offer was on — very few investors were willing to tender their shares at Rs 1,475 per share, the initial floor price set by Oracle.

Sources said that the company and its merchant bankers sought the opinion of fund managers and major shareholders, as to what price they would tender their shares. Only then did they come out with this expensive, but the last, open offer price. Minority shareholders and the ‘i-flex cartel’ may be having the last laugh. On being asked whether retail investors should tender their shares at this price, Tejas Doshi, head of research, Sushil Finance, said that it is a good price. “To that extent, I expect many shareholders will participate in the open offer. Also, they may not revise the offer again,” he said.

Everytime Oracle has upped its stake in i-flex, its acquisition cost has been higher. Its first open offer, made after it bought CVC’s stake, was for Rs 882 per share. The next tranche it acquired, and which gave it over 50% stake in the firm making it an Oracle subsidiary, was for about Rs 1,210-1,473.

Inspite of Oracle’s consistent denial that they would not delist the company, speculation is rife that the company would eventually delist. As the head of institutional equities at a Mumbai-based retail brokerage put it, “Many investors are likely to tender their shares at this attractive price. Now those who don’t, would be left with minimal liquidity in the stock and the prospect of being squeezed out.”

As per current Sebi rules, companies wishing to delist have to go for reverse book-building (RBB) mechanism, which allow investors to decide the price at which companies can buy them out and delist their shares.

However, now Sebi wishes to introduce an exit price for remaining shareholders, which will be higher than the fixed price (which is a 25% premium to the average of 26 weeks highs and lows) or the “fair price”, to be determined by a rating agency. Just for the record, in case new delisting rules are implemented, Oracle’s current offer price is way above this number and the company would find its going easy.

How this battle will play out in the days to come is anybody’s guess. It is the classic cat-and-mouse game, yes — but who’s the cat and who’s the mouse is yet to be decided.